U.S. Territories and Their Status
For international businesses considering expansion into U.S. territories, a clear understanding of U.S. laws for foreign companies is essential. While it may seem that doing business in the United States follows a uniform legal framework, each U.S. territory operates under distinct legal, tax, and immigration rules. This guide provides key insights to help businesses navigate these complexities and successfully expand into Puerto Rico, Guam, American Samoa, and the Northern Mariana Islands.
For many foreign businesses—and even some Americans—it can be confusing to determine where U.S. laws apply and where they do not. Although the term "United States" may seem straightforward, its legal definition varies depending on the context, whether in nationality law, visas, taxation, intellectual property, or other areas of federal regulation. This guide takes an in-depth look at how U.S. territories are treated under different legal frameworks and what that means for international businesses looking to enter these markets.
The United States has several territories, five of which are inhabited. In descending order of population, they are:
- Puerto Rico
- Guam
- U.S. Virgin Islands (USVI) (not to be confused with the neighboring British Virgin Islands (BVI))
- American Samoa (not to be confused with the neighboring independent country of Samoa)
- Commonwealth of the Northern Mariana Islands (CMNI)
Each U.S. territory operates under a unique legal and business framework, affecting everything from citizenship status to tax policies and trade opportunities. The table below provides a quick comparison of key legal and economic factors across the five inhabited U.S. territories. This will help businesses assess which territories align best with their expansion goals.
| Territory | Citizenship | Tax System | Customs Territory | Trade Advantage |
|---|---|---|---|---|
| Puerto Rico | U.S. Citizens | Independent Tax Code (Act 60 Incentives) | Yes | U.S. Market Access, No Federal Taxes |
| Guam | U.S. Citizens | Federal Tax System | No | Pacific Trade Hub, Defense Contracts |
| U.S. Virgin Islands | U.S. Citizens | EDC Tax Incentives | No | Caribbean Market, U.S. Legal Protection |
| American Samoa | U.S. Nationals | Separate Tax System | No | Controls Own Borders, Unique Trade Rules |
| CNMI | U.S. Citizens | Federal Tax System | No | Visa Waiver for Certain Tourists |
Nationality and Citizenship Laws
- Puerto Rico, USVI, Guam, and CNMI: Individuals born here are U.S. citizens by birth.
- American Samoa: Residents are considered U.S. nationals but not U.S. citizens unless they undergo naturalization.
This distinction matters for issues such as passport issuance, voting rights, and eligibility for federal employment.
Visa and Immigration Policies
For purposes of U.S. immigration law, the territories are generally considered part of the United States, meaning U.S. visa rules apply there. The exception is American Samoa, which retains oversight of its own borders (and applies certain entry requirements even to U.S. citizens).
It is worth noting that Guam and the CNMI allow visa waivers for certain nationalities that are not eligible for equivalent waivers to the United States proper or other U.S. territories.
Customs
Puerto Rico is part of the customs territory of the United States. Guam, CNMI, American Samoa, the U.S. Virgin Islands are not.
Taxes
All territories have their own tax system. Some of the territories have tax codes that mirror the federal one, but not Puerto Rico and American Samoa.
For example, Puerto Rico's tax system, while influenced by the U.S. federal system, operates under its own internal revenue code. Notably, Act 60 provides significant tax incentives for export services, individual investors, and other eligible businesses, offering reduced corporate and individual tax rates. The U.S. Virgin Islands leverages its Economic Development Commission (EDC) program, offering substantial tax reductions and exemptions for qualifying businesses that invest in the territory.
These programs differ from standard U.S. federal tax structures. Furthermore, it is crucial to understand that while these territories have their own systems, U.S. federal tax obligations, such as reporting requirements under FATCA and FBAR, still apply. Businesses should consult with tax professionals to navigate the complexities of both local and federal tax laws, particularly regarding potential double taxation and reporting obligations.
Courts
All territories except American Samoa have U.S. federal district courts, which in turn belong to specific federal appeals circuits. For example, cases from Puerto Rico federal courts are appealed to the First Circuit Court of Appeals, based in Boston.
Intellectual Property
U.S. patents and copyrights apply across all territories. The same is true of federal trademark registrations. However, as is the case with the 50 states and the District of Columbia, some territories have their own trademark registration systems.
Banking Compliance
Financial institutions in U.S. territories are subject to FATCA and FBAR requirements, though the implementation can vary. Holders of bank accounts in the territories should be aware of U.S. reporting obligations, particularly for tax compliance.
Postal Services
The United States Postal Service operates in all U.S. territories, but shipping rules may differ for those territories that are not part of the customs territory of the United States (that is, all except Puerto Rico).
Currency
The U.S. dollar is the official currency in all U.S. territories.
Are Certain Territories Better for Incorporation?
Puerto Rico and the U.S. Virgin Islands are often favored for incorporation due to their tax benefits and U.S. legal protections. Puerto Rico's Act 60 provides low corporate tax rates and incentives for service-based businesses. The U.S. Virgin Islands allows companies to operate under U.S. legal protections while benefiting from certain local tax incentives.
Do Certain Territories Have Trade Advantages?
Puerto Rico has free access to the U.S. market but operates under its own tax system, making it attractive for businesses looking for U.S. market access without full federal tax obligations.
Guam serves as a key military and logistics hub, making it strategic for companies involved in defense contracting or Pacific trade.
The CNMI and Guam's Visa Waiver Programs allow certain nationalities (e.g., Chinese, Russian, and South Korean tourists) to enter more easily, making them advantageous for hospitality and tourism-related businesses.
By considering these factors, businesses can leverage the unique advantages of each territory to optimize their expansion strategy.
Conclusion
Foreign businesses looking to expand into U.S. territories must carefully navigate legal complexities to ensure compliance. Whether exploring business expansion in Puerto Rico, taking advantage of Guam's strategic Pacific location, or evaluating tax benefits in the U.S. Virgin Islands, each territory offers unique opportunities and challenges. Companies should work with qualified legal and tax professionals to optimize their U.S. market entry strategy while remaining compliant with U.S. laws for foreign companies.
U.S. Territories: "United States" Or Not
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
